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Ontario's Minister of Energy announces changes to feed-in tariff program

On May 30, 2012, Ontario’s Energy Minister Bob Chiarelli announced changes to Ontario’s FIT program that eliminate controversial domestic content requirements, affect large-scale project development, refocus attention on small-scale projects, and recognize the importance of municipal involvement. Taken together, the changes represent a significant step for Ontario’s growing renewable energy sector, and provide some stability in the face of rising concerns over what lies ahead once current FIT contracts, currently entering their construction phase, are built.

In 2009, the Ontario Power Authority (OPA) established the Feed-in Tariff (FIT) program pursuant to the Green Energy and Green Economy Act, 2009. The FIT program offers price incentives to encourage the development of renewable energy projects in Ontario. Under the current FIT program, eligible projects fall into one of three classifications: Large FIT (projects with a capacity of over 500 kilowatts); Small FIT (projects with a capacity of 500 kilowatts or less); and microFIT (projects of 10 kilowatts or less).

Summary of the Key Changes

Elimination of the Domestic Content Requirements

On May 30, during the CanSIA Solar Ontario Conference, Minister Chiarelli announced the elimination of Ontario’s domestic content requirements which mandate that projects developed under the FIT program source up to 60 per cent of their required equipment from Ontario. This announcement confirms the Ontario government’s intention to comply with a recent World Trade Organization (WTO) ruling which held that these requirements violate Canada’s trading obligations. The ministry has not yet announced whether domestic content compliance requirements will be changed for contracted, but as yet un-built, FIT projects. However, it is widely believed that these changes will be forward-looking only. The elimination of this requirement may have a significant impact on existing original equipment manufacturers and suppliers that have established OEM supply relationships, and will also change market conditions for developers and would-be market entrants.

The WTO ruling stems from a complaint lodged by the Government of Japan in September 2010 regarding the Ontario FIT program’s domestic content provisions. Japan argued that the impugned provisions discriminated against foreign firms in contravention of international trade law. The European Union initiated a similar complaint the following year. On May 6, 2013, the WTO released its reports which confirmed that the domestic content requirements are inconsistent with Canada’s obligations under the General Agreement on Tariffs and Trade 1994 and the Agreement on Trade-Related Investment Measures.

End of FIT for Large-Scale Renewable Energy Projects

Minister Chiarelli also confirmed that a new competitive procurement process will replace the existing Large FIT project stream. The ministry has not yet released details on the scope, timing, and requirements of the new process. Minister Chiarelli made clear that existing contracts will not be affected by this new process.

Renewed Commitment to Small-Scale Renewable Energy Projects

Small FIT and microFIT programs will continue as before. The Ontario government has committed to making 900 megawatts of new capacity available for these programs over the next four years. An additional 70 megawatts of Small FIT and 30 megawatts of microFIT are to be procured immediately, and annual procurement targets beginning in 2014 will be set at 150 megawatts for Small FIT and 50 megawatts for microFIT. Minister Chiarelli stated that the ministry will seek participation from municipalities, universities, school boards, hospitals and industry.

Increased Municipal Involvement and Local Control

At the CanSIA Conference, Minister Chiarelli also described plans to increase local control over future renewable energy projects in order to support municipalities. The new competitive procurement process for large-scale renewable projects will require developers to work directly with municipalities to identify appropriate locations and site requirements before seeking approval from the OPA. Minister Chiarelli stated that this will give municipalities a much greater voice in the locating of large-scale projects, but will not go so far as to give them absolute veto over such projects.

To strengthen municipal participation in the small FIT program, the Ontario government has said it will:

Review the Small FIT program rules to give priority to projects partnered or led by municipalities;

Work with municipalities to determine a property tax rate increase for wind turbine towers; and

Provide funding to help small and medium-sized municipalities develop Municipal Energy Plans that focus on increasing conservation and helping to identify the best energy infrastructure options for the communities.